The NYT did some heavy-duty he said/she said reporting on the issue of gas prices and energy production. It devoted an article to President Obama’s efforts to counter Republican complaints about high gas prices.
The article told readers:
“The president said that the United States is producing more oil now than at any time during the last eight years, with a record number of rigs pumping.”
President Obama did not just say this, it also happens to be true. There are reasons that people may not be happy that the United States is producing more oil (anyone hear of global warming?), but it happens to be true.
The article then went on to tell readers that:
“But Mr. Obama warned that no amount of domestic production could offset the broader forces driving up gas prices, chief among them Middle East instability and the ravenous energy appetite of China, which he said added 10 million cars in 2010.”
This is also a statement that can be verified. The United States currently produced around 6 million barrels a day. The world market for oil is a bit less than 90 million barrels a day.
It is the world market that determines prices, not domestic production. We’re going to say that a few more times just in case any reporters are reading this.
It is the world market that determines prices, not domestic production. It is the world market that determines prices, not domestic production. It is the world market that determines prices, not domestic production.
The point is that we can only affect the price of gas in the United States if we can affect world prices. See, if we had lower prices in the United States than the rest of the world, oil companies like Exxon Mobil and British Petroleum would export oil from the United States to the rest of the world.
This is known as “capitalism.” Companies try to make as much money as possible, which means that you sell your products where they can get the highest price. This means that the price of oil in the United States can only fall if the price of oil in the world also falls.
Okay, so now let’s get back to domestic production. Suppose we drill everywhere — underneath Yellowstone, the Capitol building, your backyard and favorite place of worship. Let’s say we can increase domestic production by 2 million barrels a day, or roughly one third. This would increase the world supply by approximately 2.2 percent.
Under normal assumptions of elasticity of supply and demand, this would lead to a drop in prices of around 6 percent. That might be nice, but it won’t get us from $4.00 a gallon gas to Newt Gingrich’s $2 a gallon.
Furthermore, we will not be able to sustain this higher pace of production for long. The Energy Information Agency estimates that total U.S. reserves are around 20 billion barrels of oil. At the current production rate of roughly 6 million barrels a day, this stock will last around 10 years. If we upped production to 8 million barrels a day then we have around 7 years supply. That would mean that production would have to slow sharply before the end of President Drill Everywhere’s second term.
In short, President Obama was making assertions about gas prices and energy that are true and can be proven. The NYT obviously assumed that readers have more time than its reporter to go to the web and look these things up, but that may not always be true.
The Post committed the same sin, telling readers:
“Obama’s position reflects the White House’s belief that gasoline prices are subject to cyclical spikes due to forces largely outside its control, including the rise in Chinese and Indian oil demand.”
Yes, the White House believes that, “gasoline prices are subject to cyclical spikes due to forces largely outside its control, including the rise in Chinese and Indian oil demand,” in the same way that it probably believes that the earth goes around the sun and gravity causes things to fall down. This happens to be true.
Economist Dean Baker is co-founder of Center for Economic Policy and Research and writes regularly on CEPR’sBeat the Press blog, where this post first appeared.